COLLEGE SAVINGS 101

Savingforcollege.com

Can I use my 529 plan to buy electronics?
http://www.savingforcollege.com/articles/can-your529-withdrawals-be-used-toward-electronics-665

Updated: 2015-06-30

by Kathryn Flynn

Back to school time will be here before you know it, and if your child is headed to college in the fall, it's time to start thinking about 529 withdrawals. You've probably planned to take out enough to cover tuition, but did you know you’re also able to withdraw 529 funds tax free for purchases like books, supplies and equipment and some room and board costs? If you haven’t done so already, it’s a good idea to add up all of these expenses to make sure you don’t take out more than you need. Any non-qualified purchases can result in a 10 percent penalty tax on the earnings portion and you’ll also have to report the funds as taxable income. The principal portion is never subject to taxes or penalty since contributions were made with after tax money.

Avoid These 529 Withdrawal Traps

A question that’s been on the minds of families for some time now is whether or not “supplies and equipment” includes electronics such as computers, smartphones and tablets. One could easily assume that these items are considered a qualified education expense, since it’s hard to imagine being able to complete assignments and communicate with instructors without them. I’m guessing most professors these days send out an electronic syllabus via email and would probably frown upon a handwritten essay paper. You could also argue that a smartphone is necessary for a student’s safety. NPR has been running a special series on sexual assaults on campus and recently featured an article on new smartphone apps designed to help students in unsafe or uncomfortable situations.

It’s becoming apparent that more and more students feel that these gadgets are necessary for college, and many of their parents agree. According to a recent Marketwatch article, the average college student plans on spending around $244 on back to school electronics, which is 20 percent more than last year. While $244 may be a very small percentage of total college expenses, which were around $23,000 last year for a public 4-year university, most families agree that a tax break would still be nice.

What is a qualified expense? [VIDEO]

So can you make a tax-free withdrawal to pay for your child’s MacBook? For now, the answer is sometimes. If the student is enrolled at an eligible institution and the equipment is required for course attendance and enrollment, the purchase is considered “qualified” for 529 plan purposes. You’ll need to check with your child’s particular school and instructors to confirm course requirements.

However, changes may be on the horizon. A bill (H.R. 529) passed the House in February that would make computers a permanent qualified expenses, but this has not yet become a law.

Proposed legislation H.R. 529 – Withdrawals, reporting and redepositing

Back to school time will be here before you know it, and if your child is headed to college in the fall, it's time to start thinking about 529 withdrawals. You've probably planned to take out enough to cover tuition, but did you know you’re also able to withdraw 529 funds tax free for purchases like books, supplies and equipment and some room and board costs? If you haven’t done so already, it’s a good idea to add up all of these expenses to make sure you don’t take out more than you need. Any non-qualified purchases can result in a 10 percent penalty tax on the earnings portion and you’ll also have to report the funds as taxable income. The principal portion is never subject to taxes or penalty since contributions were made with after tax money.

Avoid These 529 Withdrawal Traps

A question that’s been on the minds of families for some time now is whether or not “supplies and equipment” includes electronics such as computers, smartphones and tablets. One could easily assume that these items are considered a qualified education expense, since it’s hard to imagine being able to complete assignments and communicate with instructors without them. I’m guessing most professors these days send out an electronic syllabus via email and would probably frown upon a handwritten essay paper. You could also argue that a smartphone is necessary for a student’s safety. NPR has been running a special series on sexual assaults on campus and recently featured an article on new smartphone apps designed to help students in unsafe or uncomfortable situations.

It’s becoming apparent that more and more students feel that these gadgets are necessary for college, and many of their parents agree. According to a recent Marketwatch article, the average college student plans on spending around $244 on back to school electronics, which is 20 percent more than last year. While $244 may be a very small percentage of total college expenses, which were around $23,000 last year for a public 4-year university, most families agree that a tax break would still be nice.

What is a qualified expense? [VIDEO]

So can you make a tax-free withdrawal to pay for your child’s MacBook? For now, the answer is sometimes. If the student is enrolled at an eligible institution and the equipment is required for course attendance and enrollment, the purchase is considered “qualified” for 529 plan purposes. You’ll need to check with your child’s particular school and instructors to confirm course requirements.

However, changes may be on the horizon. A bill (H.R. 529) passed the House in February that would make computers a permanent qualified expenses, but this has not yet become a law.

Proposed legislation H.R. 529 – Withdrawals, reporting and redepositing

 

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